Monday, December 17, 2007

Most of what we look at is the summing or averaging of buying and selling events. Price moves higher during a given time period, and it moves lower at other periods. Bar charts sum these price movements over a longer period to show us overall price movement and change. Similarly, we sum buying and selling events via such indicators as advance-decline lines, NYSE TICK, moving averages, and oscillators.

Suppose, however, we adopt a different framework and view buying and selling events as orthogonal. Instead of summing and averaging them, we treat them as independent variables. Thus, for instance, any given time period might display very strong buying *and* very strong selling; very weak buying *and* very weak selling; or any permutation thereof.

Once we conceptually separate strong/weak buying from strong/weak selling, we're then in a position to ask interesting empirical questions:

* Do weak/strong buying days have different implications for future price change than weak/strong selling days?

About Me

Author of The Psychology of Trading (Wiley, 2003), Enhancing Trader Performance (Wiley, 2006), and The Daily Trading Coach (Wiley, 2009) with an interest in using historical patterns in markets to find a trading edge. I am also interested in performance enhancement among traders, drawing upon research from expert performers in various fields. I took a leave from blogging starting May, 2010 due to my role at a global macro hedge fund. Blogging resumed in February, 2014, along with regular posting to Twitter and StockTwits (@steenbab).